Become An Accredited Investor: Private Companies No Longer Want To IPO

Investors shut out of private investments if not accredited

Investors shut out of private investments

Do you know what the market capitalization was of Microsoft when they went public on March 13, 1986? A mere $500 million (~$1 billion in today’s dollars). If you had bought just 100 shares of Microsoft at the $21 offering and rode it all the way up to its peak in 1999, you would have cashed out for $1.4 million. Of course the stock came tumbling down and then back up. But you’d still have around $1 million bucks today. Not bad.

I remember working on the syndicate with my US colleagues during Google’s IPO back in 2004. We took the company public at a $23 billion market cap. Meanwhile, Facebook went public in 2012 at a $100 billion market cap. See a trend here? Companies are going public later and later in the game, meaning the public is getting less and less of the upside benefit!

The people who are getting rich are 1) Private institutional investors such as the hedge funds, venture capital funds, venture debt funds, and private equity funds, 2) Accredited investors who are able to invest in such private funds, and 3) The employees qualified enough to get jobs at these hot startups. Everybody else is shut out!

Seeing if we can balance the scale is one of the main reasons why I decided to consult with Sliced Investing. Sliced Investing is lowering the bar to let more investors gain access to private company deals and private investment funds that were never available to the public or regular accredited investors before. For example, I never would have imagined being able to invest as little as $20,000 into Lyft’s latest fundraising at a $2.8 billion valuation. What’s $2.8 billion when Uber raised money at a $48 billion valuation last year? Working intimately with private companies over the past couple of years has really opened my eyes.

Buying Structured Notes For Downside Investment Protection

Hedged Upside With Structured Notes

Are your investments hedged?

We could be in another financial bubble, but nobody really knows when a correction will take place. You might not even care if your investments decline by 20% or more over a year time frame if you are looking to invest over the next several decades. But alas, none of us will live forever, and nobody really likes to experience downside volatility. Sooner or later, we’ll have to deploy our capital for life, leisure, and charity. Not everybody wants to leave a financial legacy to raise spoiled kids!

One of the strategies I’ve taken to protect against downside risk is to buy various structured notes based on different indices like the S&P 500, Euro Stoxx 50, and the Russell 2000, or buy single stock structured notes of specific companies. Not only do I regularly rebalance my portfolios, I also consistently dollar cost average every month. You’ll be surprised how big a fortune you can create after just 10 years by methodically applying these two financial practices.

Structured notes are derivative products that usually provide hedged returns. In this post, I’d like to explain to you another recent structured note I bought to help illustrate how structured notes work. I buy all my structured notes through a Citi Wealth Management account. My other investment portfolios include: a Rollover IRA, a SEP IRA, a Self-Employed 401k, and a Motif Investing portfolio. 

Are We In Another Financial Bubble? Valuations Look Stretched

Stock Market and Real Estate Market Bubble PoppingOf course we are in a bubble! When you’ve got people with no professional financial experience giving investment advice, you better believe we’re in a bubble. Online investing advice by non-finance professionals is the modern day version of shoe shine boys giving stock tips prior to the crash of 1929. Always understand the background of those who give investment advice before considering their counsel.

Even after 20 years of investing and working in the finance industry, I always feel uncomfortable giving any sort of investment advice because I’ve had way too many losses partly thanks to multiple boom and bust cycles. Furthermore, everybody’s risk tolerance and money making abilities are different. The best thing we can do is have an appropriate asset allocation to ride out the waves.

The good thing about bubbles is that the greater fool game can last for much longer than expected because we humans are GREEDY, GREEDY, GREEDY!

The largest criers of the word “BUBBLE!” are those who have the least amount at stake. Perhaps they sold their real estate, stocks, or businesses before 2012 and are now kicking themselves. Maybe they are still graduate students with a lot of student loans to repay. Or maybe they are retirees or early retirees who can no longer take full advantage of a heated economy. Whatever the case may be, when the largest complainers of a bubble start getting back in, you know danger is imminent.

Let’s at least all agree that we’re in the second half of a bull market and the bubble will eventually burst. Maybe we’ll only correct by 15%-20%, unlike 2009’s 50% ass-kicking. But eventually, that year or three of pain will come!

Is Buying A Stock Coincidentally Before An Acquisition Insider Trading?

Insider Trading Jail CellOn Saturday, July 16, 2014 I played in a tennis tournament with a partner that worked at Trulia, an online real estate company. He just got his job and was explaining to me how the company makes money through its ad placements for Realtors. If you’ve ever wondered why companies like Trulia and Zillow have done nothing to lower selling commission rates from 5%, it’s because real estate agents are their clients. Asking how a company makes money or plans to make money is always my number two question after understanding what the company does.

We had a really fun time playing against Berkeley Tennis Club across the bay. After getting home, I decided that I was going to buy Trulia stock because I liked their business model, the stock had corrected somewhat, I was bullish on the real estate market, and it seemed like a prime takeover target. I was set on buying $50,000 worth of the stock on Monday, July 18.

For some reason, I got too busy that Monday and didn’t execute my order before 1pm PST. Mondays and Wednesdays were my consulting days for one of my ex-clients. I forgot about buying Trulia that entire week until I saw news after the close on July 28, 2014 that Zillow was acquiring Trulia for $3.5 billion in stock at a 25% premium! Damn! I could have made $12,500 in just a couple weeks!

What a shame. Or how fortunate. Let me explain.

How To Invest And Profit In A Rising Interest Rate Environment

Rising Interest Rates, Raygun Rocketship, by Nan Palmero

Rising Rates? Photo of Raygun Rocketship by Nan Palmero

After 34+ years of declining rates, you now believe that interest rates are finally going to start increasing. After all, the Fed Funds rate is at 0.25% and the 10-year yield is at ~2%. How much lower can they go?

I’m in the camp that interest rates will stay low for years to come because of the following reasons:

* Information efficiency
* Economic slack
* Contained inflation
* Coordinated Central Banks
* The growth of China and India and their continued purchasing of US debt
* The growing perception that US dollar denominated assets are the safest assets in the world
* A 30+ year trend of declining rates that is telling us we’re more adept at managing inflation with each new cycle that passes

But let’s say I’m wrong. Let’s say rates start rising aggressively? Where should one invest? What else should one do? To answer these questions, let’s first look back at history and get smart!

Personal Capital Review – New Investment Features And A Meeting With The CEO

Bill Harris, CEO of Personal Capital

Bill Harris, CEO of Personal Capital

After 3.5 years of using Personal Capital’s free financial tools to track my net worth, manage my cash flow, and optimize my investments, it’s finally time I do a unique review of Personal Capital from the perspective of an entrepreneur, an affiliate blogger, an equity shareholder, and a consultant for the past 17 months (Nov 2013 – April 13, 2015).

I’ve highlighted in previous posts how I use Personal Capital to reduce portfolio fees and how to run various growth scenarios to better manage your 401(k) for retirement. Now I’d like to share with you some thoughts about the company after spending over 1,500 hours consulting with Personal Capital. On April 13, 2015 I officially started my new role as a special advisor to the firm.

Motif Investing Investment Portfolio Review 1Q2015

Volatile Stock Market

Hang on for the rest of the year!

On January 30, 2015, I finally opened up my first Motif Investing portfolio with $10,000. I waited until the end of January because I felt there was a lot of uncertainty in the market (there still is), and I was also taking my sweet time doing research on the 30 companies and ETFs I wanted to purchase.

Goals For Investing

1) To fully experience the Motif Investing interface to know about the good and the bad as an investor and as a consultant to make suggestions for further improvement.

2) To deploy $10,000 worth of cash that was just sitting in my bank account in order to make more than a lousy 0.1% interest. I’ve made it a habit of investing some amount of money in the stock market through my SEP IRA, 401k, Solo 401k, private wealth management account, or online brokerage account every month for over 10 years. I suggest doing the same as you’ll be surprised how quickly your balances add up!

3) To finally build a legitimate portfolio in an after-tax brokerage account, instead of just speculating on one to three stocks at a time. The portfolio is a comprehensive growth-oriented, special situations portfolio which is supposed to be diversified enough where rebalancing more than once a quarter is NOT necessary. I’m no longer actively looking for home run stocks because I’ve already built my financial nut. Instead, I’m looking for moderate growth in the 7%-12% range for my overall portfolio.

4) To follow the financial markets more carefully. From 1999 – 2012, I spent 5 – 10 hours a day reading investment research, watching financial news, reading financial news, following global politics, monitoring economic indicators, dialing into conference calls, and speaking about companies with clients. Then I’d start going for days without checking anything at all because I was so focused on building my online business. Having an active investment portfolio helps keep my mind sharp so I can make more intelligent investments, and be more knowledgeable when talking to others in the industry.

5) To create a community based investment portfolio. Back in 2010, I actually created a fictitious fund called The Samurai Fund made up by stocks picks from the community. It was fantastic fun that blew away the S&P 500 index thanks to crowdsourcing. For example, my pick was ticker symbol SAM of course, the Boston Beer Company that produces Samuel Adams beer. I bought the stock at $46.60, when the market cap was at $668. The share price is now at a whopping $272 with a market cap of $3.54 billion for a return of 483%!

There are plenty of investment enthusiasts reading Financial Samurai, and I’d love to engage all of your thoughts about the markets, the current positions in the motif, and what trades should be made, if any. Perhaps we can all become better investors and make more money if we put our heads together because it’s hard to keep track of everything, all the time. We can essentially create an investment club with ongoing discussion in the comments section of these quarterly posts. 

Should I Use A Wealth Management Company Like Personal Capital?

Samurai Boat On Lake TahoePersonal Capital is a Silicon Valley digital wealth management company that launched in September, 2011 by former Intuit and PayPal CEO Bill Harris. His team’s goal is to give everyday people more control over their finances by using their technology for free while modernizing personal wealth management advice over the Internet.

I’m always intrigued by tech companies here in the Valley because I’ve got the entrepreneurial bug as well. It’s all about market disruption for the good of the consumer. Given a company needs to grow its user base and its profits in order to survive, I’m curious to know how a company with now over $120 million in venture funding, most recently led by USAA, BBVA, and Corsair in October, 2014, plan to continue their growth path.

With employees to pay, offices in Redwood City, San Francisco, and Denver to support, and technology to continuously build, revenue must flow in to counteract the cash burn. The great thing is that Personal Capital reached a terrific milestone of managing over $1 billion in assets at the end of 2014, and has now over $1.4 billion in assets as of 2Q 2015. Their growth rate looks to be accelerating as the become the leading digital wealth manager today.

TARGET USERS OF PERSONAL CAPITAL WEALTH MANAGEMENT

Kiva Loans: Alleviating Poverty Using Microfinance

Poverty by Geraint RowlandIn America, we are truly blessed with opportunity to help us chart our own course and grasp success as much as we desire it. Services provided by financial institutions are one of the things that we as American citizens have easy access to, allowing us to utilize financing and credit to further our goals in aspects of our financial strategies on both a personal and business level.

For many Americans, the idea of not being able to take out a mortgage to purchase a house, obtain student loans for higher education, or receive business loans to pursue business goals would be unfathomable – yet there is a significant portion of the world’s population that simply does not have access to financial services of this nature.

What is microfinance? Kiva explains it well, “Microfinance is a general term to describe financial services to low-income individuals or to those who do not have access to typical banking services. Microfinance is also the idea that low-income individuals are capable of lifting themselves out of poverty if given access to financial services.”

Can Anyone Be An Accredited Investor? The Government Can’t Tell

Accredited Investor Equal AccessOne of the questions I asked in my accredited investor post is whether the current definition of accredited investor is fair or not. 61% of you voted that the Securities And Exchange Commission (SEC) should not dictate who can and cannot invest in private offerings. Only 31% of you said the definition is currently fair, while the other 8% voted the SEC should raise the income and net worth limits.

As expected, some people shared their frustration in the comments section.